The Commission ended last week with the filing of a case against an issuer in the plant extract business and its controlling shareholder centered on the sale of unregistered shares to three individuals and errors in company filings about the transactions. The focus on the sale of unregistered securities continues this week with the addition of unregistered broker charges in the latest case filed by the agency. SEC v. White, Civil Action No. 18-cv-61870 (S.D. Fla. Filed August 13, 2018).

The action centers on offerings of securities made by Aegis Oil, LLC and 7S Oil & Gas, LLC, conducted over multiple years. During that period investors were solicited and purchased shares in each firm. Specifically, beginning in October 2010, and continuing over about a five year period about 250 investors purchased Aegis securities, investing approximately $35 million through a continuous series of 15 different offerings. Similarly, between November 2014 and July 2016 7S, previously the field operator for the Aegis projects, offered and sold its securities in oil well projects. About $7 million was raised from 70 investors. The Commission previously brought actions against each firm based on the fraudulent sale of securities.

Defendants Alexander White and Paul Vandivier, neither of whom has ever been registered with the Commission or FINRA, helped manage the offerings. The securities sold by the two men and their teams were investment contracts. Generally, investors were told that the securities paid large returns and were safe investments. For example, pitch men told potential investors that the Aegis securities paid a return that ranged from 15% to as high as 200%. For 7S the range was 20% to to 30%. Commissions supposedly were not over 10% according to the information given to potential purchasers. The claims about the securities were exaggerated and untrue.

Mr. White managed a team of sales agents that solicited and raised money for Aegis and 7S. Generally, he supervised about a dozen sales agents with offices in several states. As a team leader he assisted with training for the agents and helped close the transactions which typically began with a telephone solicitation, followed by written materials.

Defendant White was paid 35% for sales by his team of Aegis securities and 28% to 35% for the 7S offering. In 2012 and 2013 he was paid about $2.9 million for the Aegis offerings. In addition, Mr. White was paid about $3.94 million in commissions from Aegis through CC Excel Energy, LLC, a now defunct company that he controlled. For the 7S offerings Mr. White was paid about $32,600 from July through October 2015 and another $197,000 through Conservative Surveyors, LLC, another firm he controlled. Mr. White paid out portions of the commissions to his team.

Mr. Vandivier also served as a team leader. In that role he carried out duties substantially similar to those of Mr. White. Mr. Vandivier was paid about $870,000 for his work and that of his team on the Aegis offerings and an additional $23,000 for the 7S offerings. The complaint alleges violations of Securities Act sections 5(a) and 5(c) and Exchange Act section 15(a)(1). The case is pending. See Lit. Rel. No. 24234 (August 13, 2018); see also SEC v Lewis, Civil Action No. 18-cv-61869 (S.D. Fla. Filed August 13, 2018)(action naming as a defendant Chad Lewis who also acted as an unregistered broker on the offerings described above; settled with a consent to the entry of a permanent injunction based on Securities Act sections 5(a) and (c) and Exchange Act section 15(a)(1); and the payment of disgorgement, prejudgment interest and a penalty in amounts to be determined by the court at a later date). See Lit. Rel. No. 24233 (August 13, 2018).

Companies that put “blockchain” or a similar word in their name often attract significant attention from the investing public as well as regulators. The phenomenon is so well established that Chairman Clayton included a warning to firms that add such words to their name in remarks delivered earlier this year. A similar, although lesser phenomenon, involves firms in the plant extract business, including marijuana. While the plants may not draw quite the attention of virtual currency, in many instances the firm and its shares will be carefully scrutinized by all. Such in the Commission’s latest case in the area – a plant extraction firm charged with Securities Act section 5 violations and filing and internal control violations. SEC v. Duffield, Civil Action No. 18-cv-6984 (S.D.N.Y. Filed August 2, 2018).

Defendant Roger Duffield is a British citizen residing in South Africa. He is also the President and CEO of Defendant Plandai Biotechnology, Inc., a London based firm whose shares are quoted on OTC Link. The firm states it is in the business of producing botanical extracts from live plant material which includes green tea leaves, tomatoes and marijuana. Much of the firm’s plant material grows on a 7,400 acre estate in South Africa.

Beginning in late 2013, Defendants directly offered to sell Plandai shares to three investors. Eventually the transactions were consummated. First, in November 2013 Investor A agreed to purchase 20,000 shares of Plandai stock for $10,000. Mr. Duffield directed that the payment be wired to an account for CRS Technologies, another firm he controlled. Investor A is not accredited or sophisticated. Defendants did not forward the payment to the company.

Second, Defendants offered to sell Plandai stock to Investors B and C, brothers who were neighbors of a firm employee in Seattle. Following a number of telephone calls the brothers agreed to purchase a total of 528,100 shares for $115,000 between November 2013 and August 2014 in three transactions: 1) Investor B purchased 86,8000 shares for $40,000; the funds were for the most part sent to CRS Technologies, although$1,600 in cash was given to a third party; 2) the brothers agreed to purchase additional shares; the transaction was documented and the funds sent to CRS Technologies; and 3) the brothers agreed to purchase another block of shares, documented in an agreement; the payments were sent to CRS Technologies. When one of the brothers asked the reason for sending payment to CRS Technologies, Mr. Duffield claimed that the shares were from a block owned by that firm – a false statement. All the payments by the two brothers for the stock were sent to Plandai.

Investors A and B were not accredited or sophisticated. None of the shares sold were registered. There was no valid exemption for the transactions, according to the complaint.

Subsequently, Plandai filed its annual report on Form 10-K on June 30, 2014. A section of the report recounted the firm’s stock transactions. The sale to Investor A was omitted. A portion of the transactions with Investor B were incorrect. The money from the investor purchases listed above was not properly accounted for in the books and records of the firm. The complaint alleges violations of Securities Act sections 5(a) and 5(c) and Exchange Act sections 13(a) and 13(b)(2)(A) and (B). The case is pending. See Lit. Rel. No. 24232 (August 10, 2018).